TAX INCENTIVES FOR GREEN TECHNOLOGY INDUSTRY

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1 26 July 2017 PAM Centre, Bangsar, Kuala Lumpur Malaysia Your Profit Centre in Asia GBI Professional Series Waste Water Recycling and GBI New Tax Incentives Seminar TAX INCENTIVES FOR GREEN TECHNOLOGY INDUSTRY By: N. Gogielan Green Technology Division, MIDA 1

2 Table of Contents MIDA in Brief Investment Strategies Investment Policies Approved Investments Tax Incentives for Green Activities Application Procedures

3 MIDA IN BRIEF

4 Who Are We? Promotion The principal Malaysian Government agency responsible for the promotion of investments and coordination of industrial development and selected services sectors in the country Project Evaluation Planning First point of contact for investors who intend to set up projects in the manufacturing and services sectors in Malaysia Follow Up/ Monitoring 4

23 Overseas Centres around the world Los

Chicago London Stockholm Munich Frankfurt Milan

Seoul Dubai Mumbai Singapore Taiwan Sydney 12

Bharu Kuala Terengganu Kota Kinabalu HQ KL

5 23 Overseas Centres around the world Los Angeles Houston New York Boston San Jose Chicago London Stockholm Munich Frankfurt Milan Paris Tokyo Osaka Beijing Guangzhou Shanghai Seoul Dubai Mumbai Singapore Taiwan Sydney 12 State Offices Alor Setar Penang Ipoh v Kota Bharu Kuala Terengganu Kota Kinabalu HQ KL Sentral, Kuala Lumpur Selangor Seremban Melaka v Johor Bahru Kuantan Kuching

Coordinate applications for approval and

6 Immigration Department Royal Malaysian Customs Labour Department Telekom Malaysia Berhad Advise and assist investors on matters relating to immigration, customs, labour, utilities and occupational safety & health. Coordinate applications for approval and other matters under the purview of the relevant ministries and departments. 5

7 INVESTMENT STRATEGIES

8 High Technology & Knowledge Intensive High Value Added Strong Linkages with Domestic Industries Iconic/ Pioneer Project Skills Intensive Utilization of natural resources Quality Investment (FDI & DDI) Green & Clean Technology High Income Jobs Capital Intensive Completing the ecosystem Malaysia Your Profit Centre in Asia

9 INVESTMENT POLICIES

10 OWNERSHIP Manufacturing & selected services sectors that are fully liberalised CAPITAL Freedom to Repatriate Capital, Interest, Dividends and Profits No Restrictions EXPATRIATE POST Liberal policy, based on merit of each case 10

MIDA provides the overall facilitation to investors on the establishment of

and render assistance to expedite the implementation of approved

MIDA State Directors are stationed at the respective states to hand-hold

11 MIDA provides the overall facilitation to investors on the establishment of projects Infrastructure & Industry Support Division in MIDA HQ will monitor and render assistance to expedite the implementation of approved manufacturing and services projects. MIDA State Directors are stationed at the respective states to hand-hold and assist investors in obtaining all necessary approvals until projects are operational. Malaysia Your Profit Centre in Asia

The Industrial Coordination Act, 1975 requires

time paid employees to apply for a Manufacturing

12 The Industrial Coordination Act, 1975 requires manufacturing companies with shareholders funds of RM2.5 million and above or engaging 75 or more full time paid employees to apply for a Manufacturing Licence (ML). ML application will be processed by MIDA. Malaysia Your Profit Centre in Asia

13 APPROVED INVESTMENTS

14 14

15 15

16 EE Projects Approved as at 31 st December 2016 Type of Services No. of Projects Total Investment (RM mill) Own Consumption 106 5, Energy Service Company (ESCO) Total 129 6, RE Projects Approved as at 31 st December 2016 Source: MIDA RE Projects Based on Sources No. of Projects Total Investment (RM mill) Solar 318 3,288.9 Biomass 126 4,758.0 Biogas 73 1,015.0 Mini Hydro 23 1,630.0 Geothermal Total ,

17 Waste Recycling Projects Approved ML/Incentive as at 31 st December 2016 Top 5 Industry No. of Projects Total Investment (RM mill) Basic Metal Products 45 1,909.7 Rubber Products 47 1,814.2 Chemical & Chemical Products 43 1,216.4 Plastic Products Petroleum Products Source: MIDA 17

18 TAX INCENTIVES FOR GREEN TECHNOLOGY

19 Investment Tax Allowance (ITA) Income Tax Exemption (ITE) Green Technology Incentive, Income Tax Act,

Eligible Company A company that undertake investment in a

environment Incentive Investment Tax Allowance (ITA) of

the date of application received by MIDA until 31 December

20 Eligible Company A company that undertake investment in a specific project that promotes sustainability and green environment Incentive Investment Tax Allowance (ITA) of 100% of qualifying capital expenditure (QCE) incurred from the date of application received by MIDA until 31 December The ITA can be utilised to offset against 70% of statutory income

21 Industry Renewable Energy (RE) Energy Efficiency (EE) Green Building Green Data Centre Integrated Waste Management Activity Project Generation of energy such as electricity, steam, heat and chilled water using RE sources like solar*, biomass, biogas, mini-hydro and geothermal *Excluding solar FiT project Investment in energy efficient equipment or technologies e.g energy efficient motor, variable speed drive, chiller, cogen etc. Building owners of the commercial / industrial building that have been awarded green building certificates from certification body approved by the Government. Purchase of any energy efficient product or solution for data centre which have been awarded green building certificates from relevant certification body approved by the Government Waste recycling / recovery / treatment activities and additional activities such as composting / storage / collection / disposal 21

Company must be incorporated under the Companies Act, 1965 Company must achieve the following green results: conserves the use of energy and/or other forms of natural resources or promotes the

22 Company must be incorporated under the Companies Act, 1965 Company must achieve the following green results: conserves the use of energy and/or other forms of natural resources or promotes the use of renewable energy or recycles waste material resources; minimises the degradation of the environment or reduces greenhouse gases (GHG) emission; promotes health and improves environment. 22

23 Eligible companies A company which provide green services that support investment in green project Incentives Income tax exemption of 100% of statutory income from the date application received by MIDA in the current year of assessment until year of assessment 2020.

24 Industry Renewable Energy (RE) Services Feasibility study, system design & advisory & consultancy, testing & commissioning Energy Efficiency (EE) Advisory & consultancy, energy audit & management, measurement & verification, testing & commissioning Green Building Green Data Centre Certification or Verification Bodies Green Township Design & consultancy, testing & commissioning of green building equipment/system System design & feasibility study, advisory & consultancy, testing & commissioning Green certification of products, equipment and buildings Advisory & consultancy, design & feasibility study in green township and low carbon cities planning Electric Vehicles Installation, maintenance and repair of EV charging equipment, infrastructure and EV charging station. Operation of EV charging station. Maintenance, repair and overhaul of EV 24

25 Company must be incorporated under the Companies Act, 1965 and has started operation in green services after 25 Oct Company must meet the following green services: At least one competent / qualified personnel of company in green technology Company must have a green policy related to environmental/sustainability; and 100% of company s income must be derived from green technology services 25

26 INCENTIVES FOR WASTE INDUSTRY

27 Promoted List under Promotion of Investment Act (PIA), 1986 Green Technology Incentives, under Income Tax Act, 1967 TAX INCENTIVES Establishment of Waste Eco Park (WEP) under Income Tax Act,

28 Incentive under PIA, 1986 Incentive under Green Technology Incentive for Waste Eco Park Establishment For single activity i.e. recycling only or manufacturing of products from waste source Besides recycling, waste recovery and treatment activities are also included to encourage more sustainable production and consumption. Focus on more integrated activities of waste management which includes composting, storage, disposal. To encourage the establishment of integrated faciliy for waste management activities e.g. basic infra, waste segregation, education centre, recycling, waste treatment.

29 (i) Recycling of Waste Toxic and Non-toxic Waste Chemicals Reclaimed Rubber Applicable to all industries e.g Metal & Alloys, Chemical, Textile, Electrical & Electronic and etc. (ii) Processing of Agricultural Waste & by Products e.g Processing sugar cane mill waste, rice mill waste, palm oil mill/estate waste and etc to manufacture animal feed, fertilizer and pellets.

PIONEER STATUS (PS) Income tax exemption of 70% of the statutory income for a

60% on the qualifying capital expenditure incurred within a period of 5 years to

CRITERIA For waste recycling, companies are not allowed to import waste/scrap;

30 PIONEER STATUS (PS) Income tax exemption of 70% of the statutory income for a period of 5 years; OR INVESTMENT TAX ALLOWANCE (ITA) Investment tax allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years to be utilised against 70% of the statutory income. CRITERIA For waste recycling, companies are not allowed to import waste/scrap; and For biomass product, minimum value added requirement is 40% and Managerial, Technical & Supervisory (MTS) ratio is 25%.

31 Tax Incentives for Waste Eco Park (WEP) WEP Developer WEP Manager WEP Operator 31

32 INCENTIVE Income Tax Exemption of 70% of statutory income derived from: Rental of building; Rental received from the usage of waste collection and separation facility; Rental received from waste water treatment facility located in the WEP effective for Y.A until Y.A ELIGIBILITY CRITERIA Company must develop infrastructure within WEP with incorporates the following elements: 1. Basic infrastructure e.g. roads, drainage system, utilities and sewerage; 2. Building & facility for waste receiving and separation; 3. Waste water treatment; 4. Building for recycling/recovery/treatment facility; 5. Building education & awareness centre and/or 6. Disposal facility. Minimum amount of investments in fixed assets RM50 million (excluding land). WEP must be approved by National Solid Waste Management Department (JPSPN), relevant Waste Authorities, State Government or Local Authorities

33 INCENTIVE Income Tax Exemption of 70% of statutory income derived from services activities including management; maintenance; supervision and marketing of the WEP effective for Y.A Y.A ELIGIBILITY CRITERIA Company must be appointed by the WEP Developer to provide services activities approved by Government; Company is not allowed to import waste from other countries; and Reporting on wastes received/processed to WEP developer.

34 INCENTIVE Income Tax Exemption of 100% of statutory income for a period of 5 years derived from the qualifying activities undertaken in the WEP; or Income Tax Exemption equivalent to 100% of qualifying capital expenditure (ITA) incurred within 5 years period. The allowance can be offset against 70% of statutory income for each assessment year. ELIGIBILITY CRITERIA Type of activity : Waste Recovery, Recycling, Treatment; Periodically submit to WEP Manager all data on waste received/processed/sold to domestic or export market; and Company not allowed to import waste from other countries.

35 Example 1: Assumption: ITA: RM4.6 million Profit Before Tax (+/-) Tax Adjustments Adjusted Income Less: Capital Allowances WITHOUT TAX INCENTIVE (RM) 10,000,000 2,000,000 12,000,000 (5,000,000) WITH TAX INCENTIVE (RM) 10,000,000 2,000,000 12,000,000 (5,000,000) Statutory Income 7,000,000 7,000,000 Percentage (%) 70% 30% 4,900,000 2,100,000 (-) ITA Nil 4,600, ,000 2,100,000 Chargeable Income 7,000,000 2,400,000 Tax 24% 1,680, ,000 35

36 Example 2: Assumption: ITA: RM10 million Profit Before Tax (+/-) Tax Adjustments Adjusted Income Less: Capital Allowances WITHOUT TAX INCENTIVE (RM) 10,000,000 2,000,000 12,000,000 (5,000,000) WITH TAX INCENTIVE (RM) 10,000,000 2,000,000 12,000,000 (5,000,000) Statutory Income 7,000,000 7,000,000 Percentage (%) 70% 30% 4,900,000 2,100,000 (-) ITA Nil *10,000, ,100,000 Chargeable Income 7,000,000 2,100,000 Tax 24% 1,680, ,000 Balance to be carried forward to next year of assessment 5,100,000 * Only RM4.9 million will be utilised. 36

Example : ITE (Statutory income 100% exempted) WITHOUT TAX INCENTIVE (RM) WITH TAX INCENTIVE (RM) Profit Before Tax (+/-) Tax Adjustments Adjusted Income Less: Capital Allowances 10,000,000

37 Example : ITE (Statutory income 100% exempted) WITHOUT TAX INCENTIVE (RM) WITH TAX INCENTIVE (RM) Profit Before Tax (+/-) Tax Adjustments Adjusted Income Less: Capital Allowances 10,000,000 2,000,000 12,000,000 (5,000,000) 10,000,000 2,000,000 12,000,000 (5,000,000) Statutory Income 7,000,000 7,000,000 Chargeable Income 7,000, % Exempted Tax 24% 1,680,000 Nil 37

38 APPLICATION PROCEDURES

39 39

APPLICATION FLOW FOR PROJECT AND SERVICES Applicant checks on project eligibility to apply ITA/ITE Application submitted to MIDA by 31 Dec 2020 (Form GT/JA) MIDA receives complete application

40 APPLICATION FLOW FOR PROJECT AND SERVICES Applicant checks on project eligibility to apply ITA/ITE Application submitted to MIDA by 31 Dec 2020 (Form GT/JA) MIDA receives complete application from applicant Yes No MIDA requests further information and verification MIDA prepares evaluation report Presentation to National Committee on Investment (NCI) Issuance of Interim Approval Letter 40

Applicant submits application to MGTC together

Letter Project MGTC validates project complies to

service listed/registered under MyHIJAU Mark

further information and verification MGTC s

tax form to IRB together with validation letter

41 Applicant submits application to MGTC together with: Completed MIDA Form GT/JA Interim Approval Letter Project MGTC validates project complies to GT project criteria Comply Services MGTC verifies service listed/registered under MyHIJAU Mark Services Comply Not comply Project MGTC requests further information and verification MGTC s Validation Letter to applicant Applicant submits tax form to IRB together with validation letter from MGTC Services MGTC requests applicant to register under MyHIJAU Mark Service 41

42 WEP Incentive, Income Tax Act, 1967 Effective from 1 Jan 2016 Application received by 31/12/2020 Form WEP-D/JA, WEP- M/JA, ICA/JA-1 & guideline are available on MIDA website For further details, please refer to

Waste Recycling, Biomass related activity, Manufacturing Submit Form ICA/JA to relevant Divisions in MIDA (based on finished product) MIDA evaluates application and tabled at National Committee on

43 Waste Recycling, Biomass related activity, Manufacturing Submit Form ICA/JA to relevant Divisions in MIDA (based on finished product) MIDA evaluates application and tabled at National Committee on Investments Decision letter will be issued within 6 weeks from complete information received Company needs to apply for compliance/ determination of effective date of incentive to Licensing & Incentive Compliance & Monitoring Division, MIDA (within 24 months)

Licensing & Incentive Compliance and Monitoring Division, MIDA

PIA 86 (ITA)-(I) Application for the Determination of Effective Date of

approval APPROVED PIONEER STATUS (PS) BORANG PIA 86 Application for

44 Licensing & Incentive Compliance and Monitoring Division, MIDA evaluates application APPROVED INVESTMENT TAX ALLOWANCE (ITA) BORANG PIA 86 (ITA)-(I) Application for the Determination of Effective Date of Investment Tax (ITA 1) Submission within 24 months from the date of approval APPROVED PIONEER STATUS (PS) BORANG PIA 86 Application for Pioneer Certificate BORANG PIA 86 (ITA)-95(II) Verification of Compliance to Investment Tax

45 CRITERIA OF VERIFICATION OF ASSETS/PROJECT BY MGTC

46 MGTC s role: To verify the technical requirement including the main equipment / assets as major components for the performance and green impact from the project Documents required Application Form (GT/JA) which submitted to MIDA earlier Interim Approval Letter from MIDA Criteria 60% of main equipment/assets in the GITA Project must be recognised and registered under the MyHIJAU Mark or have product certification that is recognised and accepted by GreenTech Malaysia. Project s impacts to the environment i.e. GHG emission reduction, waste reduction, fuel savings, environmental improvement, energy consumption savings and water consumption savings Application procedure refer to Malaysia Green Technology Corporation (MGTC) Website: 46

Malaysia Your Profit Centre in Asia Website: www.

5, Jalan Stesen Sentral 5 KL Sentral, 50470

47 Malaysia Your Profit Centre in Asia Website: N. Gogielan Senior Asisstant Director Green Technology Division, MIDA MIDA Sentral, No. 5, Jalan Stesen Sentral 5 KL Sentral, Kuala Lumpur Tel: /3404 Fax: gogielan@mida.gov.my 47

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